The former loan company boss now sees himself as little better than a mid-rank drug dealer

As a sub-prime mortgage lender, Richard Bitner has not done too badly. He lives in a huge mock Tudor house in a wooded suburb on the edge of Dallas, complete with miniature turrets, an oversize fireplace and wood-panelling. But he is a little bit, shall we say, tortured.

Bitner was co-founder and president of Kellner Mortgage Investments, a firm which specialised in providing high-risk loans of the sort that triggered America's mortgage meltdown and credit crunch. Now out of the game, he compares himself to a drug dealer, acknowledging that his trade has achieved pariah status in the public eye.

"I almost look at the mortgage industry kind of like the drug trade. Wall Street and the investment banks are the Bolivian drug lords," he says. "You look at this and you go: What were we doing? Who doesn't want the feeling of euphoria? Who doesn't like to get money?"

He continues: "Wall Street, the drug lords, were creating this product. Lenders and brokers are the street dealers who were largely making it available based on a consumer desire; a want for it."

A trim, bearded 41-year-old with a small medallion on a chain around his neck, Bitner has lifted the lid on the mortgage industry's excesses in a book called Confessions of a Subprime Lender which is packed with tales of crooked brokers, deceitful customers, avaricious Wall Street banks and all too obliging credit rating agencies. Thanks to appearances on television discussion shows across the US, he is becoming the human face of a loathed industry.

He reckons his firm, which peaked with 65 employees, put him at the level of a mid-ranking narcotics fiend: "I'm probably the guy who is in the city distributing it to all the people on the corners, and it is ultimately going to the consumer - the wholesaler."

Across the US, an estimated 2.5 million people are in danger of losing their homes to foreclosure this year as a result of the sub-prime mortgage crisis. Bitner's description of day-to-day business at Kellner is an eye-watering glimpse of the industry's slide into anarchy.

His company was in effect a middle man, taking applications from independent brokers and providing them with loans funded by big finance houses, then selling the finished articles on to Wall Street for securitisation.

Bitner bankrolled Kellner's creation by persuading his parents to mortgage their house in 2000 and he stayed in the game for five years, watching the types of loans on offer from financial institutions get steadily riskier.

Dishonesty became endemic in loan applications. By the end, Bitner reckons that 70% of submissions to the company from brokers were deceptive. Properties, supposedly objectively appraised, were spectacularly overvalued. He estimates that half of loans were on homes over-egged by up to 10%, a quarter had prices exaggerated by 11% to 20% and the rest were "so overvalued they defied all logic".

Tricks

"The industry lost its mind," says Bitner. "It went from borderline stupid to downright insane." The notion of "acceptable risk" simply went out of the window: "I watched the margins compress in the industry and I realised no one was providing for the risks."

In his book, Bitner recounts a seemingly endless list of tricks used by brokers to push dubious loans. Many simply withheld information, such as the fact that a homebuyer was getting an additional loan to pay for a deposit or that a couple, buying on the basis of joint income, were actually planning to divorce. Others would manipulate figures by knocking up ersatz payslips using desktop publishing programs.

"I don't want to say I became desensitised to it, but it gets to a point that you feel like you can't trust anybody," says Bitner. "I've always operated from the perspective that I'll give anyone the benefit of the doubt until they prove me wrong, but I've gotten to a point in business where I've become a little more jaded."

Members of the public were urged to stick to one broker rather than shopping around because each broker would check their credit record, and, through the sheer fact of being officially checked, fragile credit scores often fall. In one case, Bitner recalls that a loan came across his desk for a single family residence, depicted in a blurred long-distance photo. On closer inspection, it turned out to be part of a multi-occupancy office park.

The industry was barely regulated: in Texas, mortgage salespeople had to be sponsored by a registered broker. Bitner describes how 250 different loan officers were attached to a single one-man office measuring about 1 square metre, with licences pinned to every surface.

"There was a tremendous amount of ignorance. The entire industry - brokers and lenders - are largely looking to the guidelines that are being brought to us from up above, from Wall Street, to say this is an acceptable level of risk," he says.

Fast-talking, articulate and animated, Bitner blames the fragmented nature of mortgage lending for the industry's dramatic fall to earth. Like a drug ring, he says a hierarchical structure allowed players to continue passing on risk at a faster and faster pace, without anybody pausing for thought.

"It used to be one bank that did everything [on a loan]: underwrote it, securitised, wrote on it, foreclosed on it," he says. "Securitisation allowed us to break it up into so many components where nobody in the chain really had a strong, vested, monetary interest in how that bond performed over time except for the bondholders."

He reserves his greatest ire for credit rating agencies that continued to attach high marks to packages of high-risk mortgages until the mortgage market had begun to collapse in 2007. "The rating agencies were supposed to be the independent arbitrators, the umpires. But the only referee in this entire match is largely dysfunctional; it might as well have been sitting on the sidelines drinking a fifth of gin and tonic."

As a sub-prime lender, Bitner accepts that he was far from blameless. He was, at times, knowingly marketing unrealistic loans. Bitner viewed one common product, providing 95% finance to people with ultra-low credit scores, as "absurd". But he defends the principle of sub-prime lending and maintains that in his five years he did more good than harm.

Gratifying

"My job felt amazingly gratifying. I don't think I've ever felt as gratified in work that I did. You are seeing loans that are performing. You are seeing people who would not otherwise qualify."

Yes, he admits, things ran badly out of control and everybody - from consumers to brokers, lenders, banks and the Federal Reserve - shares responsibility. But he insists that underlying intentions were sound: "There's something very empowering about this business. It's helping those people who are trying to achieve the dream of home ownership. Or, forget about the dream, they're just trying to get their family into a house. Why is that such a bad thing, if we can manage the risk?"

www.guardian.co.uk/business/2008/sep/19/subprimecrisis.richardbitner